Crushing Student Loan Debt: A Top Consumer Problem

There are many consumer problems in America today. Younger consumers are also facing the crushing burden of student loan debt. According to MarketWatch, Americans have a total of $1.2 trillion student loan debt which is racking up by $2,726.27 every second. Combine these figures with the appalling statistics that 70% of students are graduating from college with debt, and 40 million Americans are saddled with outrageous student loans, and it’s clear to see why this is a real problem for Americans and the economy.

Exorbitant student loan debt prevents consumers from buying homes and cars, or starting a family. That prevents economic growth generally. Improperly-structured loans have left students with impractical monthly payments that look more like a mortgage payment. Many Americans can’t make these payments at all, and even the ones that can are barely paying down the debt because of astronomical interest rates. According to the Wall Street Journal, roughly 43% of student loan borrowers are behind or not making payments.

This is compounded by the fact that most Americans with student loan debt took on that debt in order to advance their career. Some educational institutions made false or misleading representations about average starting salaries and graduate employment rates, but left their students with a diploma that amounts to little more than a worthless piece of paper—despite having a degree, these graduates haven’t been able to start a career that pays enough to afford their student loan payments. They decided to take out student loans believing that after graduation they would find a lucrative job (often based on the schools’ representations and marketing), but have not been able to do so. For-profit schools have been blamed for running up student loan debt in particular.

Student loan debt requires serious attention. There are many loan repayment and loan forgiveness programs, but it is clear they are not adequate to address the situation. For some Americans, it is nearly impossible to repay their student loans under the current repayment plans. This problem not only affects individual consumers, but also the American economy. Even cutting interest rates will not help in many cases—it may be necessary to majorly restructure the entire student loan repayment system to increase the repayment period and modify interest rates in order to create affordable monthly payments. The problem is made worse by the fact that student loan debt cannot be discharged in bankruptcy

unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents.

11 U.S.C. § 523(a)(8). Likewise, many student loans are subject to the Federal Debt Collections Practices Act, which can make things much more difficult for debtors.

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Consumer’s Rights to Access to Information

Controlling the collection and disclosure of information is important, but consumers’ access to data about them held by private actors can often be equally important. The European Union provides a broad right of access under Article 10 of the Data Protection Directive 95/46/EC. In contrast, the US does not have generally-applicable consumer privacy law with the same broad scope as the DPD. The US does have a few statutes that empower consumers rights to access their data. The Fair Credit Reporting Act (15 U.S.C. §§ 1681-1681x) provides that “every consumer reporting agency shall, upon request, and subject to section 1681h(a)(1) of this title, clearly and accurately disclose to the consumer . . . [a]ll information in the consumer’s file at the time of the request[.]” 15 U.S.C. § 1681g(a).  In turn, the term “file” means “all of the information on that consumer recorded and retained by a consumer reporting agency regardless of how the information is stored.” 15 U.S.C. § 1681a(g). This goes well beyond the ordinary credit reports the credit reporting agencies typically pass out. But the FCRA is fairly limited, in that it only applies to credit reporting agencies. The Dodd-Frank Act provides consumers a much broader right to access their personal data:

A covered person shall make available to a consumer, upon request, information in the control or possession of the covered person concerning the consumer financial product or service that the consumer obtained from such covered person, including information relating to any transaction, series of transactions, or to the account including costs, charges and usage data. The information shall be made available in an electronic form usable by consumers.

Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, § 1033, 124 Stat. 1376, 2008 (July 21, 2010) (codified at 12 U.S.C. § 5533(a)). There are some important limitations here, but the Dodd Frank Act defines a “covered person” as “any person that engages in offering or providing a consumer financial product or service,” which covers a long laundry list of products and services: most consumer loans, real estate settlement services, taking deposits, transmitting or exchanging funds, acting as a custodian of funds or any financial instrument, selling, providing, or issuing stored value or payment instruments, check cashing, check collection, or check guaranty services, providing payments or other financial data processing products or services to a consumer, and/or debt collection. See 12 U.S.C. § 5481(6), (15). The Communications Act provides consumers a right of access to their telecommunication data: “[a] telecommunications carrier shall disclose customer proprietary network information [CPNI], upon affirmative written request by the customer, to any person designated by the customer.” 47 U.S.C. § 222(c)(2). (This can be particularly important for consumers dealing with “spoofed” calls, as CPNI includes call detail reports (or call detail records) which can help trace back some spoofed calls to the genuine originating telephone number when regular billing records and caller ID fail.) Finally, the Communications Act also provides consumers a right to their cable data: “[a] cable subscriber shall be provided access to all personally identifiable information regarding that subscriber which is collected and maintained by a cable operator.” 47 U.S.C. § 551(d).

We need to exercise these rights or we lose them. Contact us if you’ve been denied your right to access your information.

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Portfolio Recovery Associates TCPA Litigation Settlement

My co-counsel and I recently obtained preliminary approval of a class settlement of TCPA claims against Portfolio Recovery Associates and related defendants. We are pleased to present the settlement to the approximately 7.4 million class members. The settlement concludes five years of litigation, not only before the federal court in the Southern District of California, but also the California Superior Court for the County of San Diego, the United States Court of Appeals for the Ninth Circuit, and the Judicial Panel for Multidistrict Litigation, as well as years of painstaking negotiation with the Court’s assistance. The settlement will provide millions of dollars of compensation to the class members and substantial prospective protection of their rights under the TCPA with a consent decree.

Due to the number of class members and volume of related inquiries, class members should  first contact the settlement administrator with questions. The settlement administrator’s website should answer most questions about the settlement. If class members need to call to ask questions about the settlement via telephone, they should call 1-888-301-8552. The settlement administrator will forward questions to class counsel that the settlement administrator is not able to answer.

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Motion for summary judgment in TCPA case denied

The defendant in the In re Collecto, Inc. multidistrict litigation proceeding brought an ill-considered and ill-fated motion for summary judgment, arguing that the FCC did not have authority to construe the definition of an “automatic telephone dialing system” under 47 U.S.C. § 227(a)(1).

Arguing against an administrative agency’s interpretation of a statute is usually an uphill battle, but arguing against the FCC’s decisions before a district court inevitably runs afoul of the Hobbes Act, which provides the “court of appeals . . .has exclusive jurisdiction to enjoin, set aside, suspend (in whole or in part), or to determine the validity of . . . all final orders of the Federal Communication Commission[.]” 28 U.S.C. § 2342(1). The defendant had some other arguments as to why the Court should not enforce the Hobbs Act (notwithstanding its categorical language) but those argument were not well-taken either. On February 10, the Court denied the defendant’s motion.

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Pew Report on Checking Accounts

The Pew Charitable Trusts has released the 2015 update to its report on checking accounts, “Checks and Balances.” This is a survey of disclosures from the 50 largest banks based on domestic deposit volume as tabulated in June 2014 by  the FDIC. The update focused on overdraft policies; its findings present a complex picture that consumer advocates should examine closely. Other interesting findings:

  1. Nine out of ten American households use a checking account
  2. Just three banks (Bank of America, Chase, and Wells Fargo) hold a third of all domestic deposits
  3. Sixty-four percent (64%) of the surveyed banks had a clause requiring mandatory arbitration and a class action waiver
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CFPB Report on Mandatory Arbitration Clauses

Big news for consumer class actions: the Consumer Financial Protection Board has published its long-awaited report on mandatory pre-dispute arbitration clauses. Since AT&T Mobility LLC v. Concepcion, 563 U.S. 321 (2011), these contractual clauses have effectively provided an exculpatory clause against the only procedure that effectively and economically protect consumers in many situations: class actions. The CFPB is authorized to limit arbitration clauses:

The Bureau, by regulation, may prohibit or impose conditions or limitations on the use of an agreement between a covered person and a consumer for a consumer financial product or service providing for arbitration of any future dispute between the parties, if the Bureau finds that such a prohibition or imposition of conditions or limitations is in the public interest and for the protection of consumers. The findings in such rule shall be consistent with the study [that was released today.]

Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, § 1028(b), 124 Stat. 1376, 2004 (2010) (codified as 12 U.S.C. § 5518(b)). The Dodd-Frank Act’s definition of a “covered persons” is terribly complicated, but also very broad. Restrictions on arbitration clauses by the CFPB canot undo all the harm Concepcion has caused, but it could well be a good start.

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35 Percent of Americans Facing Debt Collectors

Citing the Urban Institute’s recent study “Debt in America,” the Associated Press says “[m]ore than 35 percent of Americans have debts and unpaid bills that have been reported to collection agencies.” More noteworthy findings in the study:

  • Americans with mortgages have an average of $209,768 of debt, while those without mortgages have an average of $11,592 of debt.
  • High average debt levels tend to concentrate in metropolitan statistical areas (MSAs) where homeownership is prevalent and prices are high.
  • Eighty (80) percent of Americans with a credit file do not hold any mortgage debt.
  • “California is second only to the District of Columbia in lowest level of non-mortgage debt relative to income.”
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Appellate win in credit-reporting case

The Ninth Circuit handed us a nice win in a case under the Fair Debt Collection Practices Act and California’s Consumer Credit Reporting Act against a debt collector that reported an erroneous debt on our client’s credit report.

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Thrifty-Tel, Inc. v. Bezenek

I ran across one of my favorite cases, Thrifty-Tel, Inc. v. Bezenek, 46 Cal. App. 4th 1559 (2006), doing some research recently. Thrifty-Tel extended the common law tort of trespass to chattels to the computer age. The Bezenek’s teenage sons used a computer and a modem to obtain plaintiff’s access codes (which were then used to make long-distance calls without paying):

[T]he evidence supports the verdict on a trespass theory. . . Thrifty-Tel pleaded and proved a claim for trespass to personal property, and the defendants are properly liable under that label. Trespass to chattel, although seldom employed as a tort theory in California (indeed, there is nary a mention of the tort in Witkin’s Summary of California Law), lies where an intentional interference with the possession of personal property has proximately caused injury. . . . Prosser notes trespass to chattel has evolved considerably from its original common law application — concerning the asportation of another’s tangible property — to include even the unauthorized use of personal property: “Its chief importance now,” according to Prosser, “is that there may be recovery … for interferences with the possession of chattels which are not sufficiently important to be classed as conversion, and so to compel the defendant to pay the full value of the thing with which he has interfered. Trespass to chattels survives today, in other words, largely as a little brother of conversion.”  . . .

Id. at 1566-67. The Thrifty-Tel court also held that the boys’ use of the access code to make unauthorized calls did constitute fraud, even though no human relied on the boys’ access code:

Plaintiff’s cyber-fraud cause of action also applies a hoary common law theory to computer-age facts. The Bezeneks maintain they cannot be liable for fraud because the computer machinations did not constitute a misrepresentation and there was no evidence of reliance by Thrifty-Tel. Au contraire, asserts plaintiff: Ryan and Gerry’s use of the confidential access code was the legal equivalent of a misrepresentation that they were authorized users of its services, and plaintiff relied to its detriment on that misrepresentation when its computer automatically granted them access to the network. Plaintiff’s point is well taken. . . . True, no human at Thrifty-Tel received and acted on the misrepresentation. But California courts recognize indirect reliance. . . . Moreover, the notion that reliance by an agent may be imputed to the principal, even though the misrepresentation was never communicated to the principal, is ensconced in California law. . . . We view Thrifty-Tel’s computerized network as an agent or legal equivalent.

Id. at 1567, 1568. The fact that the plaintiff’s computer network is treated as the legal equivalent of an agent might have interesting implications in other contexts.

But what struck me re-reading Thrifty-Tel this time was the court’s effort to do equity and make sure the remedy matched the plaintiffs’ cause of action. While the plaintiff telephone company detected the boys’ activities almost immediately, it gave no notice to the boys’ parents until it filed suit at least four months later. As the court put it, “[t]he April Fools’ Day lawsuit provided the Bezeneks’ first notice of their sons’ computer hijinks.” The plaintiff sought damages under its “unauthorized usage” tariff under its California Public Utilities Commission rate schedule, including a $2,880 per day surcharge, a $3,000 “set up fee,” $200 per hour labor fees, as well as attorney fees and costs – totaling $33,720 in damages and nearly $14,000 in attorney fees and costs. The court allowed for the judgment for liability to stand, but remanded the case for the trial court to determine what actual damages the plaintiff suffered before it had an opportunity to mitigate the damages by alerting the Bezeneks to their sons’ activities.

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Significant Victory in Meyer v. Portfolio Recovery

The Ninth Circuit handed down its ruling on Portfolio Recovery’s appeal on October 12, 2012. The ruling represents a significant victory for my client, the class he represents, and consumers generally.


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